'It's usually the patient fighting to get transferred' from Kaiser, said attorney Scott Glovsky

Two medical giants in Southern California are heading for a potentially bruising legal battle.

Keck Hospital of USC has sued Kaiser Permanente, accusing California's largest HMO of sending one of its patients to Keck for open-heart surgery and then refusing to pay the $544,000 hospital bill.

USC contends that Kaiser didn't disclose that its patient had already exhausted a $75,000 annual cap on insurance benefits when it asked Keck Hospital to perform the October 2013 surgery. Kaiser could have handled the procedure with its own surgeons but opted to transfer the patient to save money, Keck Hospital said in the lawsuit.

Kaiser declined to comment except to insist that USC knew about the limitations of the patient's insurance.

This legal battle between healthcare heavyweights highlights Kaiser's long-standing practice of using outside hospitals to see some patients who require more specialized care. It also provides a rare glimpse into the sometimes bitter disputes between health insurers and providers that are often handled behind closed doors.

It seems like somebody forgot to ask or somebody forgot to tell, which may be a sign of dysfunction in our healthcare system.— Mark V. Pauly, a professor of healthcare management at the University of Pennsylvania's Wharton School

Kaiser is both an insurer collecting premiums from customers and a medical provider treating them at Kaiser-run hospitals and physician offices. In some instances, Kaiser transfers patients to outside facilities for specialty care such as transplants, then covers the costs as any other insurer would.

In this case, Kaiser transferred the patient from the intensive care unit at its Los Angeles Medical Center to Keck Hospital knowing it would not cover the costs, USC said in the lawsuit, filed May 15 in Los Angeles County Superior Court.

The Kaiser representative who called Keck to arrange the surgery said the patient had active health coverage through Kaiser, the lawsuit said. With that assurance, USC authorized the surgery and treated the patient for 13 days at its hospital.

In December, Kaiser denied Keck Hospital's bill for the treatment, saying for the first time that the patient had exceeded the $75,000 cap on annual coverage, USC said. Those coverage limits were set by a state program Kaiser participates in for people who were denied coverage because of preexisting conditions.

Kaiser declined to discuss details of the lawsuit, but said in a statement, "We are confident that Keck's allegation that it was not informed about coverage limits is not accurate."

The lawsuit could tarnish a lengthy relationship between the healthcare giants. Keck, then known as USC University Hospital, and Kaiser first entered into an agreement in 1994 for the hospital to treat some Kaiser patients, with Kaiser paying the tab, USC said in the lawsuit.

Kaiser, a nonprofit based in Oakland, is California's largest HMO and one of the largest healthcare providers in the country. It reported $53.1 billion of operating revenue last year and $2.7 billion in net income.

Mark V. Pauly, a professor of healthcare management at the University of Pennsylvania's Wharton School, said a lack of communication about the patient's coverage appears to be at the center of the disagreement.

"It seems like somebody forgot to ask or somebody forgot to tell, which may be a sign of dysfunction in our healthcare system," Pauly said.

Scott Glovsky, a Pasadena attorney who represents other Kaiser patients suing the HMO over access to appropriate and timely care, said this latest hospital dispute is unusual in several ways.

Glovsky said Kaiser typically goes to extreme lengths to keep patients at its own facilities as part of its unique HMO model.

"It's usually the patient fighting to get transferred," he said. "If Kaiser authorized the treatment, they can't reverse course and later deny payment. It is not fair to a hospital to essentially dupe them into taking the patient."

Neither Kaiser nor USC would identify the patient, citing rules on medical privacy. Kaiser said the only coverage it offers with a $75,000 cap on annual benefits is part of California's high-risk pool, known as the Major Risk Medical Insurance Program.

For years, it has provided coverage to people with serious health problems who were previously rejected by insurers. There is a $750,000 cap on lifetime benefits in addition to the $75,000 annual limit.

New federal rules lifting most coverage limits don't apply to the state program.

Enrollment in the state high-risk pool has fallen by half to about 3,000 people since insurers are no longer permitted to reject applicants under the Affordable Care Act, according to Morgan Staines, chief counsel for the state program. The governor's latest budget proposal calls for closing the state program by the end of this year, Staines said.

For most consumers, the federal health law prevents insurers from setting lifetime coverage limits, and annual limits were phased out for most health plans starting this year. Health insurance policies in place before March 2010, when the health law was passed, are grandfathered and don't have to comply with rules on annual limits.

Keck Hospital is one of several medical centers with which Kaiser partners to supplement its care. For instance, it has sent patients to City of Hope for bone marrow transplants and used UCLA Medical Center for kidney transplants.